GoPro stock price is a bargain for the right buyer

GoPro (GPRO) stock price collapsed to a record low this week, a tragic situation for a company that was highly popular among investors and traders. It has dropped by more than 65% this year and by over 70% in the past five years. It remains over 90% below its all-time high.

The downfall of GoPro

GoPro is a company that dominates the wearable camera industry. It is a pioneer company that changed an entire industry and is still popular among fans.

In the past few years, however, demand for its products has waned and some analysts believe that the company could go out of business in the next few years.

To see how low GoPro has fallen, you just need to look at its income statement, which shows that its revenue dropped from over $1.19 billion in 2019 to $1 billion in 2023 and $931 million in the trailing twelve months.

It has also moved from being a profitable company to one that made a net loss of over $393 million in the trailing twelve months.

The most recent financial results showed that GoPro’s revenue dropped by 23% in the last quarter to over $186 million. Its net loss for the quarter was $48 million while its gross margin thinned to 30.5% from the previous 31.4%.

GoPro’s revenue dropped during the quarter even after increasing its sales and marketing spend from $39 million to $41 million during the quarter.

GoPro’s key issues

GoPro’s business faces several issues that explain why it is in trouble. First, it is a one-product company. This means that the company makes most of its money from its Hero Black camera, which starts at $249. Its most expensive camera goes for about $600. It comes with the ability to shoot better videos than its other versions.

Therefore, while GoPro’s cameras are still in demand, most of its buyers see no need of upgrading them unless then they are broken. This is unlike other hardware companies like Apple, which are constantly releasing new versions of its smartphones.

GoPro has tried to venture into other products in the past. For example, it launched the Karma drone a few years ago and exited the business in 2018 as it faced substantial competition from the likes of DJI and other companies like Autel Robotics, Parrot, and Skydio.

GoPro also launched products like Omni, remote controllers, GoPro Fetch, and GoPro Omni only to discontinue them.

To some extent, being a one-product company has its benefits as it lets companies to refine their strategies and boost their margins. In GoPro’s case, the main challenge is that people don’t replace them often and there are signs that demand is falling.

GoPro has also worked on becoming a subscription company. Its Premium service costs $50 a year while Premium+ goes for $100. Plus lets users auto-upload their GoPro videos, access unlimited cloud storage for their footage, a big discount for its accessories, and synced mobile and desktop editing.

The plus offer has all the solutions in the premium package and 500 GB of cloud storage for non-GoPro footage. There are signs that the subscription business is no longer growing as the revenue dropped by 35% in the second quarter to $49 million.

GoPro would be a good acquisition target

Fundamentally, I believe that GoPro is a good company with beloved products and a leading market share in the industry. However, it would make a good acquisition target either by a company with more products or private equity.

Garmin is one company that would make sense to own GoPro since it sells similar products in the sports and fitness industries. A company that buys GoPro at the current valuation would be getting it for free.

Looking at its balance sheet, we see that GoPro has over $133 million in cash and equivalents and $97 million in inventories. Its current assets stand at over $351 million against $238 million in current liabilities, giving it a working capital of $113 million. GoPro’s total debt stands at just $92 million, which can easily be covered by its cash balances.

The main challenge for GoPro is that it is still losing money as its loss stood at $47 million in the second quarter. In this case, there are ways to save these funds and make it profitable since the company spent $46 million in R&D, 41 million in sales and marketing, and $14.9 million in general and administration.

Most of these funds could be cut. For example, a company like Garmin can integrate functions in R&D and G&A with its existing operations and slash its operating expenses by more than half.

What next for the GoPro stock?

The daily chart shows that the GPRO stock price has been in a strong downward trend and is now sitting at its record low. It has remained below all moving averages and recently dropped below the key support at $1.29, its lowest swing in July.

By moving below that level, it invalidated the double-bottom pattern. Therefore, without a buyout, the stock will likely continue falling and could crash below $1.

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